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What distinguishes a closed-end fund from an open-end fund?
AIt redeems shares from investors at NAV each day
BIt sells a fixed number of shares in one offering
CIt offers new shares continuously to all buyers
DIt must dissolve on a date fixed at its creation
Answer & Solution
Correct answer: B. It sells a fixed number of shares in one offering
1. An open-end fund sells shares on a continuous basis and redeems them back from investors.
2. A closed-end fund does the opposite: it sells a fixed number of shares once, in an initial public offering.
3. Those shares then trade on a secondary market such as an exchange rather than being redeemed by the fund.
4. Continuous offering and daily redemption at NAV both describe the open-end structure instead.
5. A fixed termination date is the mark of a unit investment trust, not of a closed-end fund.
_Source: US SEC Office of Investor Education and Advocacy, "Mutual Funds and ETFs: A Guide for Investors", section Glossary of Key Mutual Fund and ETF Terms_
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